Business, 07.05.2021 02:20 Elency

Suppose a U. S. firm is considering whether to issue stock in the U. S. or in Mexico. Assume the two stock markets are fully segmented, and that the following conditions prevail: Mexico U. S. Stock market expected return 8% 7% firm’s beta 0.8 1.0 riskless rate 3% 1% Expected rate of peso appreciation -2%/year against the U. S. dollar a) What is the cost of equity issued in the U. S.? b) What is the cost of issuing equity in Mexico, from the U. S. corporation’s perspective? Your answer should again be in percent per year, and should recognize that the dollar is the home currency for the U. S. corporation.

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Suppose a U. S. firm is considering whether to issue stock in the U. S. or in Mexico. Assume the two...

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